ASSIGNEMENT 7 - International Macroeconomics

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ASSIGNEMENT 7 : BELGIUM 
 
1) Comment the value of your country’s target function and it’s parameters: 
Before any domestic or other country policies, the target function is negative with a rate of -
0.089 only due to the shock effect. The different parameters have been more or less 
impacted by the shock as follow: 
The GDP decreased by 0.327% from the benchmark 
The unemployment rate increased by 0.045% 
The prices slightly decreased by 0.077% showing a small deflation 
The government balance deteriorated by 0.105% from the benchmark 
The trade balance has been affected pretty similarly by a deterioration of 0.152% from the 
benchmark 
The household consumption in volume decreased very slightly by 0.025% 
The corporate investment in volume appears to be the parameter the more affected by the 
shock with a decrease of 0.937% 
The public demand hasn’t been affected at all 
The domestic demand decreased by 0.147% 
The export really slightly decreased by 0.009% but the import increased more, by 0.132%, 
deteriorating the export to import ratio by 0.157 points. 
2) Comment the gap between your policy’s intended effects and the observed 
impact on the target function components. Use the data on the report and 
rely on macroeconomics theory: 
The strategy was to increase the government expenditures to stimulate the economic 
growth. The strategy was applied in both sides, companies 
and households/workers. Companies taxes was reduced 
by 5% and Employers social contribution was reduced by 
2%, reducing Value added tax by 2%, and Subsidies was 
given for companies, 5%, to increase company’s 
investments. In the other side, households/workers, 
government gave 3% of Households social benefits and 
Public/Private relative wage had an adjust of +2% to 
increase income distribution. To sum up, the strategy was 
increase governments expenditures to improve GDP multiplier, 
by reducing unemployment with public jobs, increasing salaries to lead an increase in 
income population and consumption, and giving subsidies for population and companies. 
Those decisions led to some expectations, among them: improvement in the target 
Function; GDP improvement; increase in employment rate; and improvement in domestic 
market. As consequences, it was expected government deficit and 
inflation. 
However, in fact, what happened was: the high-level importations led to a worse trade 
balance and unemployment; the GDP increased but not enough. Furthermore, government 
balance and inflation presented a negative result, as it was expected. After all, the target 
function, surprisingly, revealed a negative result. The policy decision inducted a positive 
impact (+0.020 on the target function) on the global macroeconomic situation, but was not 
enough to respond to the shock effects (-0.149) that was even higher than the policies 
impact, and the other countries policy’s impact, without any coordination with them on a 
specific policy, was positive, but very small (+0.005). That explains a total negative target 
function at a rate of -0.124% from the benchmark. 
Finally, for the second year, the strategy was to keep 
government expenditures and Public Global demand to 
increase GDP and the target function. However, due to the 
negative government balance the tax strategy change, it 
was not given corporate taxes anymore. Also, subsidy for 
households/workers was not given anymore because of 
the importation, since people was spending a significant 
part of their additional income in foreign products leading 
to a negative trade balance. Lastly, subsidy for companies 
had an increase to stimulate national industry and lead to an increase in domestic 
production and international competitiveness. 
3) Prepare a 2 slide powerpoint summarizing points 1 and 2 above 
4) Present your country’s situation to the other countries in your universe 
5) Merge presentation with the other countries in your universe 
6) Discuss the global macroeconomic situation and write a couple of slides 
answering the following question: What gains could be expected from the 
coordination of the macroeconomic policies? 
Those 4 questions were made in interaction with the other groups in class. 
A coordination of the macroeconomic policies is necessary, especially in this case of an 
expansionist policy because it create a virtuous circle of a simultaneous increase of the GDP 
and the other parameters both inside the country but also in the other country, and even 
more if those countries belong to the same economic area like the EU, where there is a 
strong interdependence between countries. By increasing the government expenditure in all 
the countries, we could see with the simulation the positive impact of foreign policies on the 
local economy and see how coordination could impact positively the trade balance and the 
inflation rate.